Correlation Between Bank Of and UPM Kymmene

Can any of the company-specific risk be diversified away by investing in both Bank Of and UPM Kymmene at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Bank Of and UPM Kymmene into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Bank of and UPM Kymmene Oyj, you can compare the effects of market volatilities on Bank Of and UPM Kymmene and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Bank Of with a short position of UPM Kymmene. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Of and UPM Kymmene.

Diversification Opportunities for Bank Of and UPM Kymmene

-0.91

Correlation Coefficient

Bank Of  UPM Kymmene

Pay attention - limited upside

The 3 months correlation between Bank and UPM is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and UPM Kymmene Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UPM Kymmene Oyj and Bank Of is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on The Bank of are associated (or correlated) with UPM Kymmene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UPM Kymmene Oyj has no effect on the direction of Bank Of i.e., Bank Of and UPM Kymmene go up and down completely randomly.

Pair Corralation between Bank Of and UPM Kymmene

Assuming the 90 days horizon The Bank of is expected to generate 0.93 times more return on investment than UPM Kymmene. However, The Bank of is 1.07 times less risky than UPM Kymmene. It trades about 0.2 of its potential returns per unit of risk. UPM Kymmene Oyj is currently generating about -0.12 per unit of risk. If you would invest  6,364  in The Bank of on September 19, 2024 and sell it today you would earn a total of  1,169  from holding The Bank of or generate 18.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

The Bank of  vs.  UPM Kymmene Oyj

The Bank

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Bank of are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Bank Of reported solid returns over the last few months and may actually be approaching a breakup point.

UPM Kymmene Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UPM Kymmene Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bank Of and UPM Kymmene

The main advantage of trading using opposite Bank Of and UPM Kymmene positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Of position performs unexpectedly, UPM Kymmene can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in UPM Kymmene will offset losses from the drop in UPM Kymmene's long position.

The idea behind The Bank of and UPM Kymmene Oyj pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.